Make a fresh start after the split

Breaking up can make it hard to get another mortgage. But things are improving, says Stephen Pritchard
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The Independent Online

Last month, the Yorkshire Building Society launched a new mortgage for divorcees. Since then, the lender has had applications worth £2m. With Fresh Start, the Yorkshire appears to have tapped into a seam of pent-up demand. The headline mortgage rates are attractive, for anyone wanting a 100 per cent mortgage, at 5.99 per cent for a five-year fixed rate and with a tracker set at 1.5 per cent over the Bank of England base rate for the term of the loan.

"If you look at 100 per cent mortgages, these rates are competitive," says Ray Boulger, senior technical manager at broker Charcol. He points out that cheaper rates are available elsewhere on the market, as well as from the Yorkshire itself, for borrowers with a deposit of 5 per cent or more. But the Fresh Start loans have some unusual features, beyond the interest rates.

The first is that the Fresh Start loan offers an interest-free period for the first six months. According to the Yorkshire, this makes the five-year fixed deal the equivalent of a rate of 4.95 per cent.

The lender will also grant a mortgage to a divorcee, taking income from maintenance into account on the basis of a solicitor's letter. Most lenders will only take maintenance into account if it is the result of a court settlement or imposed by the Child Support Agency. This penalises those who reach an amicable settlement without going through the courts.

Alternatively, would-be borrowers have to wait until they can prove that their maintenance payments are reliable. "A lot of lenders do want to see that maintenance has been paid for a year, which is no use if you want to buy a property now," says Vivienne Starkey, of financial adviser Equal Partners.

A more flexible approach to a proof of income can benefit both partners in the event of a split. According to Ms Starkey, evidence of being able to afford a mortgage can be a bigger barrier to making a fresh start than finding a deposit.

This affects both husband and wife. Under conventional arrangements for divorcees, the fact that the partner who will receive maintenance cannot prove their income means that their husband or wife might have to stay on the mortgage. In turn, that affects their ability to arrange a new mortgage.

If someone applies for a second mortgage, any existing arrangements will usually reduce the salary multiple a lender will offer, putting suitable properties out of reach. The Yorkshire scheme helps solve this problem: if the partner receiving maintenance can prove his or her own income, there is no need for their ex-spouse to stay on the mortgage after the split.

But problems remain for divorcees who want to step back on to the property ladder as soon as possible after a split. Although the Yorkshire's Fresh Start scheme has some real advantages, there are more competitive mortgage deals available in the wider market. As long as the borrower can prove their income, these could well work out cheaper in the long term.

Derek Robinson, of broker Derek Robinson Associates, in Suffolk, points out that for borrowers able to put down a deposit, Alliance & Leicester currently offers a two-year fixed rate at 4.24 per cent. The Nationwide also offers competitive rates at the moment. Robinson points out that lenders other than the Yorkshire can also be flexible about income proof, especially for existing customers.

The real risk to divorcees lies not in paying a slightly higher mortgage rate but in taking on too great a financial commitment. With house prices falling, it might make sense to stay out of the housing market, renting and using that time to build up a deposit.

Someone coming out of a failed relationship might not want the hassle of homebuying or the financial commitment; they might well find that making a new start in their personal life also prompts other changes, such as a job move. Maintenance arrangements, however amicably reached, might not prove reliable. A 100 per cent mortgage gives little room for manoeuvre.

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